While an important mortgage rate inched upward, rates had no specific trajectory over the last seven days. While 15-year fixed mortgage rates didn’t fluctuate, interest rates on 30-year fixed mortgages made gains. We also saw no variation in the average rate of 5/1 adjustable-rate mortgages.
As inflation surged in 2022, so too did mortgage rates. To rein in price growth, the Federal Reserve began bumping up its federal funds rate — a short-term interest rate that determines what banks charge each other to borrow money. By making it more expensive to borrow, the central bank’s goal is to reduce prices by curtailing consumer spending.
During its July 26 meeting, the Fed initiated a 25-basis point (or 0.25%) hike to its federal funds rate, marking its 11th increase in the current rate hiking cycle. The most recent increase could have an impact on mortgage rates, but experts say the markets may have already factored it into rates.
“Mortgage rates will continue to ebb and flow week to week, but ultimately, I think rates will stick to that 6% to 7% range we’re seeing now,” said Jacob Channel, senior economist at loan marketplace LendingTree.
The Fed doesn’t set mortgage rates directly, but it does play an influential role. Mortgage rates move around on a daily basis in response to a range of economic factors, including inflation, employment and the broader outlook for the economy. A lower inflation rate is good news for mortgage rates, but the potential for additional hikes from the central bank this year will keep upward pressure on already high rates.
Rather than worrying about mortgage rates, though, homebuyers should focus on what they can control: getting the best rate they can for their financial situation.
To increase your odds at qualifying for the lowest rate available, take the steps necessary to improve your credit score and to save for a down payment. Also, be sure to compare the rates and fees from multiple lenders to get the best deal. Looking at the annual percentage rate, or APR, will show you the total cost of borrowing and help you make an apples-to-apples comparison among lenders.
30-year fixed-rate mortgages
The average 30-year fixed mortgage interest rate is 7.56%, which is an increase of 3 basis points from one week ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most common loan term. A 30-year fixed mortgage will usually have a greater interest rate than a 15-year fixed rate mortgage — but also a lower monthly payment. You won’t be able to pay off your house as quickly and you’ll pay more interest over time, but a 30-year fixed mortgage is a good option if you’re looking to minimize your monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.79%, which is the same rate from seven days ago. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a larger monthly payment. However, if you’re able to afford the monthly payments, there are several benefits to a 15-year loan. These include typically being able to get a lower interest rate, paying off your mortgage sooner, and paying less total interest in the long run.
5/1 adjustable-rate mortgages
A 5/1 ARM has an average rate of 6.56%, the same rate from the same time last week. For the first five years, you’ll usually get a lower interest rate with a 5/1 adjustable-rate mortgage compared to a 30-year fixed mortgage. But since the rate shifts with the market rate, you could end up paying more after that time, as described in the terms of your loan. Because of this, an adjustable-rate mortgage could be a good option if you plan to sell or refinance your house before the rate changes. Otherwise, shifts in the market mean your interest rate may be a good deal higher once the rate adjusts.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021, but increased steadily throughout 2022 as the Federal Reserve began aggressively hiking interest rates. Now, mortgage rates are well above where they were a year ago. What does this mean for homebuyers this year?
“Mortgage rates have hovered in the 6% to 7% range for the past 10 months. Though home prices have softened slightly nationally, the still-high cost of borrowing means hopeful home buyers have felt little relief,” said Hannah Jones, economic research analyst at Realtor.com.
However, if inflation continues to decline and the Fed is able to hold rates where they are and eventually cut them, mortgage rates are likely to decrease slightly in 2023. However, they’re highly unlikely to return to the rock-bottom levels of just a few years ago.
The most recent housing forecast from Fannie Mae calls for the average 30-year fixed mortgage rate to close out the year at around 6.6%.
“Mortgage rates have been volatile for some time now and while they could eventually start trending down over the next six months to a year as inflation growth continues to cool, their path is probably going to be bumpy,” Channel said.
We use information collected by Bankrate to track changes in these daily rates. This table summarizes the average rates offered by lenders across the country:
Average mortgage interest rates
|30-year jumbo mortgage rate||7.58%||7.56%||+0.02|
|30-year mortgage refinance rate||7.75%||7.66%||+0.09|
Rates as of Sept. 11, 2023.
How to find personalized mortgage rates
When you are ready to apply for a loan, you can connect with a local mortgage broker or search online. When looking into home mortgage rates, take into account your goals and current finances.
Specific interest rates will vary based on factors including credit score, down payment, debt-to-income ratio and loan-to-value ratio. Generally, you want a good credit score, a higher down payment, a lower DTI and a lower LTV to get a lower interest rate.
Besides the interest rate, additional costs including closing costs, fees, discount points and taxes might also factor into the cost of your house. You should talk to a variety of lenders — like local and national banks, credit unions and online lenders — and comparison shop to find the best loan for you.
How does the loan term impact my mortgage?
When picking a mortgage, it’s important to consider the loan term, or payment schedule. The most common loan terms are 15 years and 30 years, although 10-, 20- and 40-year mortgages also exist. Mortgages are further divided into fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are stable for the duration of the loan. For adjustable-rate mortgages, interest rates are set for a certain number of years (most frequently five, seven or 10 years), then the rate fluctuates annually based on the current interest rate in the market.
One important factor to consider when choosing between a fixed-rate and adjustable-rate mortgage is how long you plan on staying in your home. Fixed-rate mortgages might be a better fit for people who plan on staying in a home for a while. Fixed-rate mortgages offer more stability over time compared to adjustable-rate mortgages, but adjustable-rate mortgages can sometimes offer lower interest rates upfront. However, you might get a better deal with an adjustable-rate mortgage if you only have plans to keep your house for a couple years. There is no best loan term as a general rule; it all depends on your goals and your current financial situation. Make sure to do your research and understand your own priorities when choosing a mortgage.